Fitch Affirms Ratings of Max Capital; Outlook Remains Negative

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the Issuer Default Ratings (IDR) and Insurer Financial Strength ratings of Max Capital Group Ltd. (Max Capital) and its subsidiaries.

The Rating Outlook remains Negative. See the complete list of rating actions at the end of this release.

Today's affirmation follows Fitch's periodic review of Max Capital. The company's ratings continue to reflect Max Capital's disciplined and flexible approach to managing risk, favorable underwriting results posted in recent years, sizable cash balances and conservative financial leverage. Partially offsetting these positives is the execution risk derived from Max Capital's growing diversified specialty product strategy, which includes an expansion into the London market with the acquisition of Imagine Group (UK) Limited (renamed Max UK Holdings Ltd.) in November 2008 and the launch of Max Specialty Insurance Company in 2007 as the company's U.S.-based excess and surplus lines platform. Fitch expects Max Capital to maintain its disciplined underwriting approach in the overall competitive market rate environment and return to overall profitability in 2009.

The Negative Outlook reflects the potential for further reductions in capital, particularly from additional significant losses in the volatile alternative investment portfolio, although exposure to this asset class is being further reduced and returns have been positive thus far in 2009. If the company suffers significant losses, the ratings could be lowered. However, if Max Capital is able to continue to improve its operating earnings and generate consistent internal capital growth in the near to intermediate term, the Outlook could return to Stable.

Favorably, thus far in 2009, Max Capital's shareholders' equity has increased 6.5% to $1.4 billion at June 30, 2009, driven by $88 million of net income. This compares to the sizable 19.1% shareholders' equity decline for full-year 2008, which was driven by a net loss of $175 million with a $233 million net loss on its alternative investments, and $110 million in common share repurchases, mostly in the first quarter of 2008.

At June 30, 2009, Max Capital's portfolio consisted of 91.5% traditional investments and 8.5% alternative investments, a significant shift from 80% and 20%, respectively, at June 30, 2008. Favorably, the traditional investment portfolio is conservative with liquid, high-quality fixed-income securities, limited exposure to subprime mortgage credit risk and $1 billion in cash. Fitch views as a positive Max Capital's recent decision to lower its alternative investment allocation range even further to 5%-7% by the end of 2009 from 10%-12%, which should continue to help reduce volatility of investment returns and increase portfolio liquidity due to the illiquid nature of the alternative portfolio.

Max Capital's balance sheet debt-to-total-capital ratio was 12.6% at June 30, 2009, down significantly from 26.7% at year-end 2008. The sizable decline was due to repayment of $150 million outstanding on the company's revolving loan facility and $120 million reduction in the total return swap loan to $105 million at June 30, 2009. Excluding the swap loan, the company's debt-to-total-capital ratio drops to 6.3% at June 30, 2009.

Fitch has affirmed the following ratings with a Negative Outlook:

Max Capital Group Ltd.

--IDR at 'A-'.

Max USA Holdings Ltd.

--IDR at 'A-';

--$91.5 million 7.2% notes due April 14, 2017 at 'BBB+'.

Max Bermuda Ltd.

Max Re Europe Limited

Max Insurance Europe Limited

Max Specialty Insurance Company

Max America Insurance Company

--Insurer Financial Strength (IFS) at 'A'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.





Fitch Ratings, Chicago

Brian C. Schneider, CPA, CPCU, 312-606-2321

Tana M. Higman, 312-368-3122

or

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Email: brian.bertsch@fitchratings.com

Source: Fitch Ratings